I would like to hear your thoughts about an idea about transforming pharmaceuticals


In recent news has been Martin Shkreli’s testimony before the House Oversight Committee. Most articles focus on Shkreli taking the 5th on most questions, very few actually provide the actual questions. Such is news these days, the actual data is left out in favor of editorializing. The fact is the questions asked by the committee had no constructive purpose, Shkreli was called before the committee for the purpose of humiliating him.

That’s not what I wanted to talk about though. This story about the testimony gets a little more into pharmaceutical pricing practice:
Ex-CEO Shkreli smirks, pleads Fifth at hearing on drug price hikes | Fox News

In a broader sense, I think the core issue boils down to whether the free market is working as intended to offer value to the consumer. The same mechanism that is not working as intended also explains why the Affordable Care Act is the opposite of what is truly needed to make medical care affordable. Competition drives value. But ACA reduces competition, especially because for many ACA takes away the option with the best value - not buying insurance - and instead takes away the incentive for insurers to provide value to a consumer who otherwise would spend their money on something else.

Similarly, the pharmaceutical industry has two problems working against any incentive to provide value. At the start, the fact is that FDA regulations on research and what must be done before a drug can be offered to the market represents an enormous capital investment which must be carried over an extended timeframe with very real risk of no pay-off. The industry enjoys, and this is the second problem, generous protection from competition as a means of trying to offset the risk and capital investment involved.

When Turing bought Daraprim and raised the price, what they did was probably not actually illegal, and probably not shocking to anybody that understands the nature of capital and risk in an FDA regulated industry. But it was shocking to the average consumer who judges the data in a consumer frame of mind.

Here’s my idea, and I wanted to hear what everyone thinks because it’s somewhat of a departure from less government, but I think in this case it’s a necessary departure. What if government takes over the research part of pharmaceuticals completely and funds it with a flat percentage tax on all pharmaceuticals, which could be waived on Medicaid, and licensing fees in the first X years on new medications. Manufacture then becomes a separate and competitive industry. I see the research being an entity not unlike NASA.

Thoughts? I’m thinking it utilizes free-market strategy where it works and it utilizes government where profit motive does not work but where it is a necessity for the public good, not unlike the manner of government having the military role to defend our nation’s sovereignty or providing roads… It’s just a little hard to for me to reconcile the concept of a growth of the federal government.


Fixing a government-caused problem by inserting MORE government into it?

Did you think this one through?

As far as,

generous protection from competition as a means of trying to offset the risk and capital investment involved.

…goes, that is covered in the Constitution under Article I; Section 8

Congress shall have the power…to promote the Progress of Science and useful arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writing and Discoveries.

IOW’s, patents and copyrights.
That is how pharmaceutical companies are afforded the protection of their investment.

Yes, the cost of bringing a new drug to the market is astronomical. And, of course, those costs are passed on to the consumer. I don’t know as there is any (good) way to lower that cost, but I do know it ain’t inserting MORE government into it.

Pharmaceuticals are no different from any other invention. Just like telephones, vacuum cleaners, and microwaves; the cost to consumer eventually comes down after the inventor has recouped its investment, along with other inventors being allowed (after X amount of time) to start copying some of the original inventor’s ideas.

What I’m trying to figure out is just what is “broke” about that.


I’m not sure if you quite comprehend the extent of this. I’ve worked in 2 industries as an engineer, automotive and medical devices. Automotive is an industry subject to considerable regulation and as such there are a limited number of players, whereas there were hundreds of companies a hundred years ago there are basically 3 domestic, and there are various countries/regions that basically have 3 - Japan, Korea, Germany being the primary ones…

Medical devices and pharmaceuticals have an order of magnitude more regulation. The manufacturing cost is low, the capital expenditure comes from the years it takes to obtain FDA approval. In automotive a car can take 3 years but that’s actual development time, there aren’t to many stages… FDA doesn’t approve prototypes for production, all the actual equipment has to be used as it will be for production to make the article for which approval is sought, and trials have to be done in stages - I’m not experienced first-hand with pharmaceuticals but I believe they have to go through animal trial stages before human trials…

FDA regulations aren’t some static thing either. In my experience there was a substantial revision in the Clinton years. While I was working at the medical device company for which I was employed as an engineer, I was working on a product that was being manufactured in South Carolina. The product needed to be moved to Indiana because the South Carolina facility was being shuttered for manufacturing, and was going to just remain as a fleet rental call center. This particular product was a rental only product that was assembled from component assemblies purchased from a supplier that generally specializes in military equipment at a cost of $15,000. This was for a therapeutic hospital bed product. Rental of this device, for which there was considerable demand, generally meant the production cost was paid for within 42 days and had a product life expectancy of about 10 years and an 95% utilization rate. Production volume for fleet growth and replenishment meant about 110 units had to be manufactured per year… It was a very low volume, but I give the example to illustrate the kind of margin relative to manufacturing cost there is.

This particular product had been introduced in the mid 1980’s, ahead of the FDA rulemaking in the Clinton FDA, and was thus grandfathered in. In spite of the low volume, there was opportunity to insource most of what was being purchased and it would have saved thousands per unit, and do the math - 100 units saving 1000 each is a million dollar cost savings, an engineer doesn’t get that kind of cost savings opportunity in automotive. I left the job to move back to Michigan though, all I can share is that it gave me some insight into the magnitude of an undertaking such as that because of the regulatory burden on something I would otherwise take as a simple in-sourcing and design optimization project.

What is the problem I’m trying to address? I’m looking at the cost drivers in the industry. It’s not the manufacture. It’s the capital investment. And presumably the liability.

Consider the idea of imported pharmaceuticals. Why is Cialis cheap from India? It’s a simple manufactured product not being used to fund capital investment. And there’s a number of manufacturers, so there’s competition as an incentive to offer value.

The cost to the consumer isn’t something that’s as obvious either as consumer goods otherwise are. It’s often paid for indirectly through insurance, then the consumer ultimately might see it in the form of insurance rate increases or changes to deductible or copay schemes, but even then some portion of that is also born indirectly by employers with no visibility to the consumer.


If government funded the research the research would be occurring on issues that were politically viable as opposed to medically and Market viable, the cost of research would skyrocket and the results of that research which proved to be beneficial would diminish to essentially nothing.

If costs are the concern but the priority is to keep the beneficial research happening then we must;

  1. Means test the lawsuits brought against drug makers instead of encouraging them
  2. Remove the FDA from the equation so all of the baseless assumptions that new drugs are flawless can be done away with
  3. Make every patient assume full responsibility for trying any medication with less than 10 years of real Market data available if they want to try the drug
  4. Remove all pharmaceutical research subsidies so only viable research is being invested in as determined by the ones investing their own money

These are Market based solutions that will minimize the R&D cost and make new developments as affordable as possible but still profitable enough to motive companies to keep developing new treatments, this will never be “cheap” because having the very best and latest of anything is not “cheap”.


Well Ret, you may not be a libertarian but as things go on the spectrum that’s a rather libertarian approach. I will generally agree it is probably better than the status quo, but I think my proposal has necessary protections to keep deregulation from going too far and I feel your proposal does go too far with deregulation.

First, I don’t know that the FDA is necessarily the right organization to handle the research as I’m proposing, perhaps something more like CDC. But I think one of my points is essential to keeping the politics out of it, and that’s that I’m proposing a tax on manufactured pharmaceuticals to fund the agency that I propose to become responsible for research.

Ultimately, the goal on this point is to eliminate the kind of abuse currently in the media with Turing pharmaceutical - I understand why it’s necessary to charge $750 per pill for a drug used to treat AIDS and cancer patients even though it’s been on the market since the 1960’s and is otherwise a $7 per pill drug, but what if we just funded research by raising the price of all pharmaceuticals by $10… Amoxicilin isn’t going to become out of reach if a bottle goes from $35 to $45, and the volume is high enough to generate a lot of funding for research.

At any rate, if the research organization is funded without depending on appropriations from the general budget, it provides what I would think is a reasonable level of insulation.

Second point, I think profit motive is a little problematic for pharmaceutical research. I think it has a place in manufacture, but sustained business seems to have tended to drive more symptom management than actual curing of conditions.

And third, I do feel the FDA and government in general has a necessary function. Drugs are marketed based on claims of benefits, and it’s necessary to regulate the industry to ensure those claims are valid and the product manufactured and supplied is the product for which the claim was proven. A century ago, miracle cures were sold that did nothing or did harmful things, and their claims of benefits had no basis other than somebody made them up for the purpose of marketing the product to people that neither knew better nor even if what they were buying was what it was said to be (or what it was at all.)

These problems still exist today, it might be more possible today to be reasonably well informed, but there’s still plenty of herbal supplements outside the realm of FDA regulation where you never know what you’re getting and more often than not are probably no better off than taking a placebo.

I think the liability reforms might be good ideas, but that’s probably the case whether it’s under the status quo or your proposal or my proposal or any proposal.


If the research money is funneled through the government then what gets researched will be motivated by what is politically beneficial as opposed to what is viable and marketable based on the demand created by need.

It cannot work better by removing market forces and replacing them with government force, that is how we broke the system.

We have not removed abuses by building the FDA, all we have done is make the abuses much more expensive while making the legitimate products much harder to get to market. My approach is a Free Market approach, not a Libertarian approach.


If we were to do it, I would want a block grant to some type of organization where the people conducting the research are the ones who decide *what *is researched. Asking Congress to decide would turn out far worse than letting Phizer decide what will make them the most money.



The CDC is no blazing star of morality, either.


True. Try to remember that it was the CDC that came up with the idiotic idea of requiring physicians to survey their patients to see if they own any firearms.